The Job Market Hurts Companies, Too

Economists can talk at length about the different types of unemployment, but papers and theories don't help those seeking jobs or employees in the short term. One of the distressing parts of the current unemployment environment is that the workers are there and the jobs are there, but there are serious mismatches in terms of skills and availability. While unemployment is often talked about in the context of the negative effects on the workers, the inability to fill vacancies is a major threat to companies, as well.

Caterpillar Frames the ProblemIn September 2011, the CEO of a large U.S. manufacturing company, Caterpillar (NYSE:CAT), highlighted the problem; CAT had openings for workers, but they simply could not find the skilled labor they needed. That left the company with a host of less-than-perfect choices: move the jobs overseas (and risk the wrath of politicians and the public), hire whomever they can get and train them (and risk seeing them walk before earning back the cost of that training), or simply try to get more out of their existing labor force and look to automate wherever possible.

It is not just a Caterpillar problem, though. Many large industrial companies, such as Siemens (NYSE:SI), General Electric (NYSE:GE) and Boeing (NYSE:BA), have lamented similar challenges in finding enough workers with the skills they need, at a price they can afford.

Back to School? As CAT's CEO puts it, the educational system of the U.S. is at least partly to blame; schools have dropped vocational training, over the years, and manual labor is no longer afforded much respect. Along those lines, for-profit post-secondary education companies like Apollo Group (Nasdaq:APOL), DeVry (NYSE:DV), and ITT Education (NYSE:ESI) have largely focused their efforts on fields like IT, rather than blue-collar trades. (For more, see How Education and Training Affect the Economy.)

Other issues though, may be playing a role, as well. In years past, workers might pick up and move stakes when conditions worsened in one region. Now, workers who were cajoled into buying houses during the boom, find themselves stuck in houses they can't afford, or at least can't sell. What's more, with all of the attention on the death of the U.S. manufacturing sector, fewer and fewer workers see the point of investing the money necessary to retrain for other manufacturing jobs.

Not Just a Manufacturing ProblemA lack of skilled workers is not just a problem in retaining or repatriating jobs in the U.S.; tech companies have been battling this issue for years. Companies like Microsoft (Nasdaq:MSFT) and Intel (Nasdaq:INTC) have frequently gone to bat in the effort to get more visas for the workers they say they need but can't find in the U.S. At the same time, while a few well-known service companies like McDonald's (NYSE:MCD) have launched large hiring campaigns within the last year, those jobs don't offer the sort of pay or long-term prospects that the economy needs. (For more on McDonald's, see McDonald's: A History Of Innovation.)

No Easy SolutionsUnfortunately for companies like Caterpillar, there are no easy or quick solutions to this skills gap. Sure, there are plenty of people clamoring for companies to dip into their cash hoards to hire more workers, but these arguments are frequently rooted in ignorance. Using cash on the balance sheet to subsidize non-productive workers, delays, and arguably magnifies, the problem. What's more, many of these same folks are those who bitterly oppose government business bailouts and it makes no sense for companies to deplete their cash going into what may be another recession.

Assuming that the markets are allowed to operate relatively freely, this situation will eventually resolve itself. Some percentage of those looking for work, and who have the means, will undertake retraining and take up those jobs, and some percentage of those jobs will migrate wherever the workers happen to be, including overseas, if need be.

The Bottom LineIn the meantime, investors shouldn't underestimate the risks present in this situation. Corporate margins have been near record levels lately, but it looks like companies will have to spend more to maintain production, either by raising wages to poach trained workers, paying to train the workers they can find, or absorbing the inefficiencies that come with trying to manage an untenable labor situation. As incremental margins often drive momentum in the markets, that's no trifling matter for investors today.